4 Reasons I Worry About the Managed Services Market…
As the Kaseya Connect User Conference wraps up in Las Vegas, I’m busy digesting a range of news and chatter from dozens of managed services providers (MSPs) and technology companies. Based on everything I’m hearing, there are four reasons I worry about the managed services market (and four reasons I think this market is here to stay and poised for more growth). Here’s both sides of the story.
First, let’s set the stage: As editorial director of MSPmentor, I have a vested interest in the ongoing success of the MSP market. And I see the market continuing to grow. But the market faces at least four prime challenges.
They include:
1. Shelfware: On the one hand, companies like Kaseya are successful. During his keynote this week, CEO Gerald Blackie hinted that Kaseya is nearing the $100 million revenue mark. But on the other hand, I heard from multiple MSPs at the conference who purchased 1,000 or more Kaseya licenses multiple years ago and many of those MSPs are using 600 or fewer of the licenses.
Blackie and I have talked about the alleged shelfware problem (unused software licenses) previously. He politely downplays the issue and always answers my questions. But I’ve got this nagging feeling that Kaseya and some other software companies are dealing with shelfware. And that means MSPs themselves are sitting on licenses they haven’t been able to sell.
I’m thinking about potentially doing a survey that measures just how much shelfware MSPs are facing…
2. Same Problem, Different Year: It seems like three basic questions continue to plague portions of the market:
- How can I transition from break-fix to managed services?
- How can I sell my customers on managed services?
- How should I price my managed services?
I attend plenty of conferences, and those three questions always seem to pop up during panel discussions — even if the panel isn’t covering those three questions. My big concern involves this point: If a VAR was never really good at driving sales, why should we expect that VAR to become a successful sales-driven MSP?
3. Lack of a Middle Class: I hear from some extremely successful MSPs all the time. But it seems like the most successful MSPs (about 500 to 1,000 of them in North America) are pulling away from the pack. And at the low-end of the market, I hear from SaaS providers that continue to empower one-man shops that are happy to build lifestyle businesses that generate $100,000 in revenue annually.
I’m not knocking lifestyle businesses. But all MSPs are not created equally. I sense that the top MSPs are going from good to great, and I wonder how many of the lower-end MSPs will go from fair to good…
4. Fear, Uncertainty and Doubt (FUD): Some pundits say VARs are dead if they don’t move to managed services. I beg to differ. Managed services is a great market but that doesn’t mean it’s for everyone.
A prime example: HPM Networks, a Hewlett-Packard solutions provider, expects its annual revenues to hit about $200 million this year, up from about $93 million last year. None of those revenues will come from managed services. For a dead “VAR,” HPM Networks CEO Romi Randhawa sounds pretty darn healthy to me.
Instead of pitching FUD, the MSP industry has to remember that managed services are only one opportunity within the much broader IT channel. Pitch to those who are ready to embrace managed services and succeed. But don’t preach to those who will never make the move.
Now for the Good News
As former Intel CEO Andy Grove often said, “Only the paranoid survive.” I certainly fit into that category. So perhaps my four concerns written above are overstated. Plus, there are plenty of signs that the managed services industry continues to thrive and grow.
Here are four such examples:
1. Global Trend: During the Kaseya Connect User Conference, I sat down with successful MSPs from South Africa and Europe. And other conferences certainly attract successful MSPs from Australia and other regions far removed from North America. More examples of global success are likely coming. A prime example: I hear Kaseya’s web site for China just went live, and a managed services push in Asia is set to accelerate.
2. Heated Competition: Competition drives innovation and also delivers price advantages to MSPs.One example: Kaseya will soon launch another MSP offering called G1. It’s meant as a lower-cost stepping stone to the new Kaseya 2 platform.
But here’s the interesting twist: Multiple MSP sources tell me G1 is Kaseya’s value-based response to Labtech Software‘s RMM offering; Labtech is funded by ConnectWise Capital and seems to be waging a customer acquisition war against Kaseya.
More competition means more choice and better pricing for MSPs. And I haven’t even mentioned the SaaS price wars that are starting as well.
3. Big Moves: Sleeping giants are finally waking up to the managed services opportunity. We’ll share a prime example involving Hewlett-Packard within the next few hours. Plus, companies like Cisco Systems, Intel and Lenovo have been particularly active assisting MSPs over the past six to 18 months or so.
4. True Believers: If you look and listen hard enough, you can find trustworthy coaches, educational organizations and associations that are assisting MSPs with their business, financial, marketing and sales strategies. But it isn’t easy to find those pundits since there are so many pretenders in the market.
Do your homework. Ask for references. Hang out with the people who are smarter and more successful than you. Pick their brains. The results will be startling.
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Nice work Joe,
The Market is changing fast and just as predicted by you and others the “Really Big Boys” are starting to want to play direct in the MSP space….. I am interested in how you see them attempting this after small and medium MSP have worked on it successfully for years.
Will they again try and use and abuse all our hard work and go direct? Who has vendors that are great and understand the value of client relationship? Who has had a vendor/supplier go direct with a MSP offering in their area?
I look forward to getting further updates from MSPMentor and reading them over coffee to see what you turn up.
Kind Regards
Tim Brewer
Accord
Tim: Thanks for your thoughts. Please keep me posted on your progress in Australia.
I have some details about how HP plans to play with VARs and MSPs in the managed services space. Still organizing them before posting the blog.
-jp
Joe, interesting thought. One of the problems with IT Service providers is that they think managed services is a service to be sold. What they do not understand, is that it is not a service to be sold; but a business model to adopt. I see very few companies creating a differentiated story for their service offering.
Go through the sales pitch and sales presentations of MSPs and you will find a common story told by all. Proactive Management, 99.9% uptime…etc…etc. These are intangible benefits. Most do not show a direct tangible benefit.
When you give intangible stories to the customer, he wonders; well were you not supposed to do this in the first place? Why am I paying you then? And why should I pay you more? And MSP’s wonder why is the customer not seeing the value in his service….its because we are not showing one.
MSP’s need to create a differentiated offering, if not, we will still be reading your article again the next year and nod our heads in agreement.
Regards,
Prakash Chaudhari
CEO, MSP1 Software
Joe: I share some of your concerns, however, it is important to realize that the RMM or PSA does not define your “managed services” offering. You can do “Managed Services” with a pencil and a piece of paper (not that I would want to). People and process key differentiators.
Most MSP’s implement a small subset of RMM features, and most SMB clients only require a small subset of RMM features. What clients do require is relationship, trust, creative problem solving and responsiveness. Those are hard commodities to mass produce.
I have nothing to really back this up other than observation, but I think the SMB market will always be dominated by small providers. Much like the accounting, legal, and other professional services markets. At least I really hope so! (Maybe someone has some market research to back this up)
Always enjoy your insights Joe!
On the issue of shelfware, is it really that big of an problem for the MSP? I’m certainly not versed in Kaseya’s licensing model – but I do know of some of the other big players like LPI and Zenith that offer the “pay as you use” model, which makes the shelfware concerns a non-issue.
Prakash@3: Creating a differentiated offering is becoming more and more difficult in the U.S. (at least in my opinion). Charging to “maintain” servers and desktops seems like old school. Getting into the applications space (online storage, backup, virtualized apps, etc.) seems like the value-add to me these days…
Rick@4: Generally speaking I think you’re right. As a small-business co-owner, I doubt I’d ever dial a big hardware provider for service and support. Our company depends heavily on a Web integrator for continued guidance because we trust their advice…
John@5: Agreed, not all models are the same. I know plenty of software companies have a pay-as-you-go model. And the SaaS providers certainly give MSPs aggressive monthly options. But there’s shelfware out there, too…
-jp
Joe,
I share some of your concerns along with much of your optimism. I do believe shelf life for some of these MSP related licenses is a concern. It threaten to put financial pressures on aspiring MSP’s, especially when, not if, they have to navigate some economic uncertainty. The upstart tool vendors will hopefully bring some positive pressure to all the vendors to make their models more accessible across the entire MSP space. There is definitely some ill will out there in market that some vendors have taken advantage of the market growth over the past few years and some of the defections you reference in your piece are evidence of this.
I also definitely agree that managed services is not an end all, be all proposition. There are many ways to serve the market and smart providers, whether they call themselves MSP’s, VAR’s or any other acronym, recognize this and leverage multiple market opportunitities. The real irony here is that most customers don’t even know what managed services is. This is our lingo, not our clients, so there are many excellent opportunities to brand and package your offerings to create a market space that you may own.
Keep up the good work my friend!
MJ
MJ: Looks like you’ve driven home two points.
1. Yes the software upstarts can put some positive price pressure on the overall market … assuming the upstarts themselves have solid business models.
2. During my flight home last week I watched a documentary about Frank Perdue… Talk about taking a commodity product and transforming it into the market’s top brand. A healthy lesson for MSPs who are worried about branding and packaging their offerings…
Best
-jp
Lots of good stuff here. I look at this very simple. If a VAR, MSP or widget company wants to be succesful today they must get back to Sales and Marketing 101. Too many in the tech business forgot this or never learned this (didn’t need to in the 90’s). But now it’s a must. The good news, if you do sales and marketing right (and yes it can be very cost-effective today), you will be very succesful. Evidence on both sides in Vegas last week.
Todd: Similar conversations continue this week at Ingram Micro Cloud Summit in Dallas. Sales, marketing and branding dominating many of the side conversations I’m having.